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Chapter 5

Chapter 5. Global Logistics. Learning Objectives. Describe the major similarities and differences between domestic and global logistics. Discuss the reasons for the increase in global business activity. Define a global company.

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Chapter 5

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  1. Chapter 5 Global Logistics

  2. Learning Objectives • Describe the major similarities and differences between domestic and global logistics. • Discuss the reasons for the increase in global business activity. • Define a global company. • Explain Porter’s dynamic diamond theory of global competitive advantage. Management of Business Logistics, 7th Ed.

  3. Learning Objectives • Describe the critical changes affecting global logistics. • Explain the effect of the changing legal and political environment in Europe, Asia, North America, and South America. • Discuss North American Free Trade Agreement and its effect on logistics. • Define the nature and benefit of a Maquiladora. Management of Business Logistics, 7th Ed.

  4. Learning Objectives • Explain the major transportation systems available for global logistics. • Distinguish among the global logistics intermediaries, freight forwarders, customs house brokers, non-vessel operating common carriers, and export management companies. Management of Business Logistics, 7th Ed.

  5. Learning Objectives • Explain the criteria used to select a port for global shipments. • Discuss warehousing and packaging requirements for global shipments. • Define the role of customs duties and free trade zones. Management of Business Logistics, 7th Ed.

  6. Global Business Logistics • Important issues to consider: • To gain a competitive advantage, global sourcing is a given for companies engaging in global marketing strategies. • The longer the supply chain, the more cooperation and coordination is required between production, marketing, purchasing and the logistics management group. Management of Business Logistics, 7th Ed.

  7. The Magnitude of Global Logistics Activity • World trade is growing as fast logistics systems have had the effect of shrinking the world, empowering competitive trade. • Foreign trade has grown in tonnage and in value for the United States and other nations. • Lower labor costs from international outsourcing is a critical component of the supply chain. • Focused manufacturing fits well into an international logistics strategy. Management of Business Logistics, 7th Ed.

  8. Table 5-1Top U.S. Trading Partners Management of Business Logistics, 7th Ed.

  9. Global Markets and Global Corporations • Trade barriers continue to fall, accelerating global business activity. • Global markets result from the general homogenization of global needs and wants. • Local needs suborned to lower-priced, higher-quality products. • Preferences for international products can also be related to attempts to copy other more prosperous cultures. Management of Business Logistics, 7th Ed.

  10. Global Competitive Strategy • To effectively serve global markets, firms should consider adopting integrated worldwide strategies. • These firms are more likely to search for global sourcing for materials and components, depots, assembly, distribution centers, and logistics. • Global firms typically design synchronous strategies around technology, marketing, manufacturing, and logistics. Management of Business Logistics, 7th Ed.

  11. Customer Service Strategies for Global Markets: Four Characteristics • Marketing becomes standardized yet customized. • Product life cycles shorten, sometimes to less than one year. • Outsourcing and offshore manufacturing are becoming more prevalent. • Marketing and manufacturing activities and strategies tend to converge and be better coordinated in firms operating globally.4 Management of Business Logistics, 7th Ed.

  12. Customer Service Strategies for Global Markets • Logistics networks tend to become more expansive and complex. • Thus, lead times and inventory may rise. • Logistics activities must be operated as a system to provide a countervailing force. • Most importantly, the service needs of internationally-dispersed customers must drive the design and implementation of the logistics system. Management of Business Logistics, 7th Ed.

  13. Critical Factors and Key Trends: Importance of Competitive Environment • Michael Porter’s study concludes that “a nation’s ability to upgrade its existing advantages to the next level of technology and productivity is the key to international (global) success.”5 • Porter feels that the US loss of global market share in advanced fields of transportation and technology shows the US slipping recently in international trade. Management of Business Logistics, 7th Ed.

  14. Critical Factors and Key Trends: Porter’s Model • Factor conditions • Ability to transform basic factors into competitive advantage • Demand conditions • Market size, buyer sophistication, exposure • Related and supporting industries • Partners in supply chain, manufacturers • Company strategy, structure, and rivalry • Market structure and nature of competition Management of Business Logistics, 7th Ed.

  15. Critical Factors and Key Trends: Changes in Logistics and Transportation • Deregulation of the U.S. Ocean Liner Industry • Shipping Act of 1984 and Ocean Shipping Reform Act of 1998 gave freedom to set rates, establish service and capacity on shipping lanes. • Ocean rates now more flexible to move in response to the laws of supply and demand. Management of Business Logistics, 7th Ed.

  16. Critical Factors and Key Trends: Changes in Logistics and Transportation • Intermodalism • Joint use of two or more transportation modes. • Microbridge moves logistics capabilities from port-to-port through port-to-point directly to point-to-point. • Shipment Control • High tech permits tracking & diversion of shipments. Management of Business Logistics, 7th Ed.

  17. Figure 5-1Types of International Intermodalism Management of Business Logistics, 7th Ed.

  18. Critical Factors and Key Trends: Changes in Logistics and Transportation • Free Trade Agreements • NAFTA is the most current. • ECM is the 15 country European equivalent. • APEC is the Pacific equivalent. • Remaining customs barriers can impair logistics activities where they remain. • Cultural differences can result in shipment delays where they are not understood. Management of Business Logistics, 7th Ed.

  19. Critical Factors and Key Trends: Changes in Logistics and Transportation • Currency Fluctuations • The exchange rate of dollars to other international currencies affects both the volume and direction of global trade. • The effects of weak or strong dollar positions carry through to marketing and logistics. Management of Business Logistics, 7th Ed.

  20. Table 5-2 Effect of Currency Fluctuations on Exports and Imports Management of Business Logistics, 7th Ed.

  21. Changing Political and Legal Environments • A Single European Market • Eastern Europe • North American Free Trade Agreement • Maquiladora Operations • Asian Emergence • New Directions Management of Business Logistics, 7th Ed.

  22. Changing Political and Legal Environments: European Market • 230 million consumers were established as one market thru the 1987 Single European Act • EU has eliminated: • Physical barriers like customs. • Technical barriers like health & safety issues. • Fiscal barriers like value-added tax and excise taxes. Management of Business Logistics, 7th Ed.

  23. Changing Political and Legal Environments Eastern Europe • Currently restructuring but generally working to improve from former communist-style governmental restrictions. • Older infrastructure is holding these nations back from full participation in global markets. • Governments have been selling assets to use for capital investment. • Future is uncertain, but markets are large enough to attract foreign capital if political environment is seen as stable. Management of Business Logistics, 7th Ed.

  24. Changing Political and Legal Environments: The North American Free Trade Agreement (NAFTA) of 1994 • 360 million people market • $6.6 trillion market • Phasing out tariffs on more than 10,000 commodities over the next 10 to 15 years • Poor transportation infrastructure remains in Mexico. • Labeling inconsistencies are problematic. • NAFTA will mature eventually. Management of Business Logistics, 7th Ed.

  25. Figure 5-3A A Typical Truck Shipment Crossing into Mexico Management of Business Logistics, 7th Ed.

  26. Changing Political and Legal Environments: Maquiladora Operations • Maquiladora Operations takes its name from the region of Mexico in which the business facilities are located. • Companies such as General Motors have built campus-style collections of assembly plants, supplier facilities and housing in Maquiladora. • Currently more than 2,000 U.S./Mexico facilities use the low wages, taxes, and low duties of the Maquiladora. Management of Business Logistics, 7th Ed.

  27. Changing Political and Legal Environments: Asian Emergence • The Pacific Rim nations have emerged as key players in the global business environment. • In the first three months of 2000, imports from Pacific Rim countries accounted for 32.9 percent of total U.S. imports. • Japan, Korea, Taiwan, and Singapore purchased 24.7 percent of U.S. exports in this same period. • Japan is the leading regional supplier, followed by China, Taiwan, and Korea. • Low labor and high quality characterizes these Asian nation’s raw materials and finished goods. Management of Business Logistics, 7th Ed.

  28. Changing Political and Legal Environments: New Directions • Offshore plants and logistics facilities • Focus production plants often require complex logistics facilities. • General expansion of worldwide markets • Worldwide growth of affluence • Growth of Caribbean, Australian, African, Russian, and Eastern European markets Management of Business Logistics, 7th Ed.

  29. On the Line: Holiday May Be Hazardous to International Logistics Systems • Workers not on the job…logistics activities come to a halt. • Holidays vary by country and must be known to international logistics managers. • By scheduling pickup and delivery around a country’s holidays, the logistics manager can: • Prevent disruptions in the international supply chain; • Maintain desired logistics service levels. Management of Business Logistics, 7th Ed.

  30. On the Line: 2001 Holidays for the United States and Its Top Six Trading Partners Management of Business Logistics, 7th Ed.

  31. Global Transportation Options • More complex than domestic due to distance and number of parties involved • Major international transportation modes • Ocean • Air • Motor • Rail Management of Business Logistics, 7th Ed.

  32. Global Transportation Options: Ocean • Ocean structure • Liner – scheduled service; regular routes • Charter – contract service; no set routes • Private – service firm’s own logistics needs • Include bulk, container, RO-RO • Most pervasive and important global mode • Revenues are substantial – see Table 5-3. Management of Business Logistics, 7th Ed.

  33. Table 5-3 Top Ten Ocean Carriers Management of Business Logistics, 7th Ed.

  34. Global Transportation Options: Air • Speed allows large compression of transit times. • Linkages with package delivery and courier services provide true point-to-point service. • Rates have traditionally restricted cargo to low density, high value goods. • Volume is approximately 1% of movements, but nearly 20% of the value. • New airfreighters can carry up to 13 TEUs (20 foot containers). Management of Business Logistics, 7th Ed.

  35. Table 5-4 Major International Cargo Air Carriers Management of Business Logistics, 7th Ed.

  36. Global Transportation Options: Motor • Global motor characteristics of speed, safety, reliability, and accessibility basically the same as for domestic transportation. • Container sizes are largely standardized into 20, 40, 45, 48, and 53 foot boxes. • Paperwork can be streamlined by having a bonded warehouse seal the container at point of shipment and not opened until it reaches its destination country. Management of Business Logistics, 7th Ed.

  37. Global Transportation Options: Rail • International rail movements are problematic. • Rail gauges often vary. • Containers maybe transloaded from rail to ocean to rail and/or motor if standard international sizes are used. • Maritime bridge movements gain speed by using an intermodal strategy. Management of Business Logistics, 7th Ed.

  38. Foreign Freight Forwarders Non-Vessel-Operating Common Carriers Export Management Companies Export Trading Companies Customs House Brokers Ship Brokers Ship Agents Export Packers Ports Strategic Channel Intermediaries Management of Business Logistics, 7th Ed.

  39. Strategic Channel Intermediaries: Foreign Freight Forwarders • Consolidate small shipments into economical container or larger-sized lots. • Used by small or inexperienced shippers. • Consolidators and agents regulated by the Federal Maritime Commission. • Fee for service and/or commission from shipping companies. • Use ocean and air modes. Management of Business Logistics, 7th Ed.

  40. Strategic Channel Intermediaries: Non-Vessel Operating Common Carriers • These carriers are used to disperse traffic moving to and from an inland port. • These NVOCCs then collect traffic from inland ports back to the ocean port cities. • This service saves the shippers from having to pay to return empty containers to the ocean carriers. • NVOCC service widens markets of the ocean carriers and provides expertise to the smaller inland shippers. Management of Business Logistics, 7th Ed.

  41. Strategic Channel Intermediaries: Export Management Companies • Export Management Companies (EMCs) act as a knowledgeable shippers agent in a foreign country. • Act as the sellers agent in getting orders, and arranging for distribution, promotion, and dealing with the foreign government. • Exclusive arrangements are possible and the EMC may sell with or without taking title to the goods. Management of Business Logistics, 7th Ed.

  42. Strategic Channel Intermediaries: Export Trading Companies • Similar to the EMCs, the Export Trading Companies (ETCs) export goods and services. • The ETC locates buyers, arranges for inland and international transportation, and meeting foreign government requirements. • Allows small and medium-sized firms the ability to compete globally. Management of Business Logistics, 7th Ed.

  43. Strategic Channel Intermediaries: Customs House Brokers • Oversee the movement of goods through customs and ensures that paperwork accompanying a shipment is in order. • Operate under power of attorney from the shipper and can pay any duty on freight. • Much of the paperwork is done ahead of the shipment using integrated computer systems, greatly reducing the time it takes to clear customs, thereby reducing transit times. Management of Business Logistics, 7th Ed.

  44. Strategic Channel Intermediaries: Ship Brokers/Ship Agents/Export Packers • Ship brokers act as agents in securing the charter of a ship. • Ship agents are the local (port) agent of the ship operator when the ship is in port. • Export packers supply a shipper specialized export packing services to help with customs and to protect the goods. Management of Business Logistics, 7th Ed.

  45. Strategic Channel Intermediaries: Ports • Port selection is a very important part of the international logistics strategy. • Different ports often specialize in different types of shipments. • Selecting the wrong port can add miles, time, and therefore cost to a shipment not appropriately routed. • Overall door-to-door transit time and variability most important factors. Management of Business Logistics, 7th Ed.

  46. Figure 5-4 Port Evaluation Factors Management of Business Logistics, 7th Ed.

  47. Table 5-5: Ranking of U.S. Ports by Containers, Tons, and Cargo Value Management of Business Logistics, 7th Ed.

  48. Storage Facilities • Storage may be necessary for containers, bulk, or finished goods. • This may require different types of in transit facilities depending upon the method of shipment and cargo type. • Longer term storage may require a public or bonded warehouse. Management of Business Logistics, 7th Ed.

  49. Packaging • Export shipments generally require a higher level of protection than domestic shipments because of extra handling and the motion of the ocean and its effect on cargo. • Shippers expect to pay more for more protection, as settling liability claims can be very difficult due to the large number of firms that may be handling the goods. Management of Business Logistics, 7th Ed.

  50. Figure 5-5 Some Symbols Used for Packing Export Shipments Management of Business Logistics, 7th Ed.

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